The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog, who sets international standards that aim to prevent illegal activities that cause harm to society.

The inter-governmental body established in 1989 during the G7 Summit in Paris to develop policies against money laundering. It is a “policy-making body” which works to generate the political will to bring about national legislative and regulatory reforms in money laundering

FATF had earlier identified the following jurisdictions as having strategic deficiencies and under Increased Monitoring, which had developed action plan with the FATF to deal with them. These jurisdictions are: Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Gibraltar, Haiti, Jamaica, Jordan, Mali, Morocco, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Türkiye, Uganda, United Arab Emirates and Yemen. As per the October 21, 2022 FATF public statement, Democratic Republic of the Congo, Mozambique and Tanzania have now been added to this list of Jurisdictions under Increased Monitoring while Nicaragua and Pakistan have been removed from this list based on review by the FATF.

FATF has 2 types of lists:

a. Black List: Countries knowns as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist. These countries support terror funding and money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.

b. Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.

Consequences of being in the FATF grey list:

Considered in the grey list may face

1. Economic sanctions from IMF, World Bank, ADB
2. Problem in getting loans from IMF, World Bank, ADB and other countries
3. Reduction in international trade
4. International boycott

A senior bank executive confirmed the RBI has shared this concern with the lenders, as this could potentially lead to non-clearance of outward remittance by banks, impacting import payments. A similar issue had sprung up when Myanmar was placed in the grey list. “After Myanmar, the RBI has indicated that similar problems are anticipated by Indian importers of pulses from Mozambique and Tanzania as these countries are also listed on the FATF grey list that may affect normal trade deals in essential commodities.

The RBI guidelines are clear that compliance to FATF norms does not prevent financial institutions from legitimate trade and business transactions with the countries under increased monitoring or enhanced due diligence (ref: Economic times)